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New Jersey whistleblower protection may be extended to independent contractors

The New Jersey Supreme Court recently issued decisions in D’Annunzio v. Prudential Ins. Co. and Stomel v. City of Camden, two highly anticipated rulings regarding who may sue under the Conscientious Employee Protection Act (“CEPA” or the “Act”), New Jersey’s whistleblower statute. The state’s highest court ruled that the definition of “employee” should be construed broadly under the Act in order to protect public policy interests and adequately reflect the modern workplace. In these companion cases, the Court clarified that, in certain circumstances, an independent contractor can be an “employee” and have standing to sue under CEPA. In determining whether a person is an “employee” who may sue under CEPA, courts will now focus on the degree of control and direction exercised by the employer over the professional worker and the integration of the individual’s services with the employer, rather than the label the parties attach to the relationship, or the manner of compensation.

In D’Annunzio v. Prudential Ins. Co., George D’Annunzio, a licensed chiropractor, entered into a consultant agreement with Prudential Property and Casualty Insurance Company of New Jersey to review medical treatment plans submitted to the company. The contract expressly stated that he was an independent contractor with sole responsibility for payment of all applicable taxes, that he would maintain his own private practice, and that he would provide services to Prudential on a part time basis. Prudential scheduled D’Annunzio to work Monday through Friday from 8:00 a.m. until noon at a company office, where he had a cubicle with a name plate on it and where he was provided with stationery, a phone number and an e-mail address. Prudential also required him to keep time sheets and would not allow him to take files from the office or forward e-mails to his home office.

After a few months, D’Annunzio notified his supervisors that he believed the company was committing insurance violations. Within two months of his complaints about the company, Prudential gave D’Annunzio notice that it was terminating his consultant agreement because his performance was not meeting expectations. D’Annunzio filed a CEPA action against Prudential and several managers, alleging that he had been fired in retaliation for complaining about the company’s alleged unethical and illegal practices.

Prudential was granted summary judgment on the grounds that D’Annunzio was only an independent contractor, not an employee. The Appellate Division reversed, finding that D’Annunzio was an “employee” for purposes of CEPA and could proceed with his whistleblower claims. The New Jersey Supreme Court affirmed the Appellate Division’s decision that D’Annunzio was a CEPA “employee,” even though his contract stated that he was an “independent contractor.” The appellate courts considered the fact that Prudential exercised significant control over him, and that he was heavily integrated into Prudential’s operations.

In determining whether he was an employee, the court adopted the 12-factor test used under the New Jersey Law Against Discrimination. Those factors are:

(1) the employer’s right to control the means and manner of the worker’s performance; (2) the kind of occupation — supervised or unsupervised; (3) skill; (4) who furnishes the equipment and workplace; (5) the length of time in which the individual has worked; (6) the method of payment; (7) the manner of termination of the work relationship; (8) whether there is annual leave; (9) whether the work is an integral part of the business of the “employer;” (10) whether the worker accrues retirement benefits; (11) whether the “employer” pays social security taxes; and (12) the intention of the parties.

The court offered guidance on which of those factors were critical, and focused on three key areas: (1) employer control; (2) the worker’s economic dependence on the work relationship; and (3) the degree to which there has been a functional integration of the employer’s business with that of the person doing the work at issue.

Applying those findings to D’Annunzio’s case, the court observed that his claim review function was integral to Prudential’s operations, that he was required to be present for half of every day of the week, that Prudential provided step-by-step instructions for his tasks, that he was required to spend a lot of time away from his private practice, and that he performed numerous administrative tasks, all of which made him a “cog” in Prudential’s operations. Hence, he was an “employee,” not an independent contractor, and entitled to sue Prudential under CEPA.

The court also issued a related decision in Stomel v. City of Camden. Stomel was a public defender for the City of Camden from 1982-1999. His services were retained pursuant to successive one-year contracts and he received a 1099 for all remuneration. Stomel claimed that, in 1997, he was approached by Camden’s municipal prosecutor, and told that he needed to contribute $5,000 to the mayor’s re-election campaign if he sought reappointment. Stomel contacted the County prosecutor’s office to report the extortion attempt. Subsequently, there was a trial in which Stomel was a government witness, where throughout his testimony, he implicated the mayor. In December, 1999, Mayor Milan informed Stomel that he was being replaced. Stomel then filed suit under CEPA and other laws, claiming that his contract was terminated in retaliation for reporting the $5,000 donation request and testifying in the criminal trial that ultimately implicated the former mayor.

The trial court entered summary judgment in favor of the city. The Appellate Division reversed, finding that Stomel was an “employee” under CEPA and was entitled to assert a claim. In making this determination, the court considered the 12-factor test and focused on the fact that his work was continuous and directly required for the city’s operations and that he was economically dependent on the work. The court dismissed the fact that Stomel was under contract for a fixed annual payment and was provided with a 1099 since his services were so integrated into the city’s delivery of services to its residents.